Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 8

Components of Full Costs

Larcker Manufacturing's cost accountant has provided you with the following information for January operations:

Direct materials	$105 per unit
Fixed manufacturing overhead costs	$675,000
Sales price	$395 per unit
Variable manufacturing overhead	$60 per unit
Direct labor	$120 per unit
Fixed marketing and administrative costs	$585,000
Units produced and sold	30,000
Variable marketing and administrative costs	$24 per unit

Required

Determine each of the following:

a. Variable cost.

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b. Variable manufacturing cost.

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c. Full absorption cost.

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d. Full cost.

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e. Profit margin.

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f. Gross margin.

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g. Contribution margin.

Step 1 of 9

Prepare gross margin income statement and contribution margin income statements, before determining the required costs and margins:

Sales revenue (30,000 units × $395 per unit)		$11,850,000
Less: Cost of goods sold
Direct materials (30,000 units × 105 per unit)	$ 3,150,000
Direct labor (30,000 units × 120 per unit)	$ 3,600,000
Variable manufacturing overhead (30,000 units × 60 per unit)	$ 1,800,000
Fixed Manufacturing overhead	$ 675,000	$ 9,225,000
Gross margin		$ 2,625,000
Less: Marketing and administrative costs
Fixed marketing and administrative costs	$ 585,000
Variable marketing and administrative costs	$ 720,000	$ 1,305,000
(30,000 units × $24 per unit)
Operating profit		$ 1,320,000